TMI Blog2011 (1) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... as raised and we are afraid we cannot permit the assessee to raise this ground for the first time before us. - Decided against the assesee. - ITA No. 20 of 1999 124 & 149 of 2005 - - - Dated:- 19-1-2011 - RAO V. V. S., RAMESH RANGANATHAN JJ S.R. Ashok for Badri Venkat Reddy for the Department. C. Kodanda Ram for Ms. Anjali Agarwal , amicus curiae, for the assessee. JUDGMENT The judgment of the court was delivered by V. V. S. Rao J.- The case referred by the Income-tax Appellate Tribunal, Hyderabad, under section 256(1) of the Income-tax Act, 1961 (the Act), is at the Revenue's instance. The question referred, namely, whether on the facts and circumstances of the case, the Tribunal was justified in directing to allow depreciation at 100 per cent. on centering and shuttering material (hereafter referred to as shuttering material) is also the question that arises in the three appeals ; two of which are filed by the assessees and the third by the Commissioner of Income-tax, Visakhapatnam. 2. The factual background in the referred case is as follows. The assessee-firm is a civil contractor. In their return for 1986-87, they claimed depreciation at 100 per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By yet another order dated March 27, 1998, the assessment was again rectified reducing the depreciation of shuttering material from 100 per cent. to 25 per cent. On appeal, the Commissioner accepted the assessee's contention and allowed 100 per cent. depreciation. Before the Tribunal, the Revenue was successful. Aggrieved by the two orders, the assessee filed two appeals separately. 5. The senior standing counsel for income-tax made the following submissions. The centering and shuttering material used by a civil contractor is a "plant" within the meaning to section 43(3) of the Act. Therefore an assessee can claim depreciation at the specified rates only. But under the proviso to section 32(1)(ii) of the Act, where the actual cost of machinery or plant does not exceed Rs. 5,000, the actual cost thereof shall be allowed as deduction. The nature of business determines the purpose of the plant and, in other words, "plant" has to be understood keeping in view the very nature of the business and understanding the way a businessman or a contractor looks at the concept of "plant". This functional test, if applied, each and every unit forming part of centering, shuttering and scaffold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 154(1) of the Act by the income-tax authorities, and such power by the Appellate Tribunal, are subject to the condition that there is a mistake apparent from the record. The power under the two sections is wide, and an order passed can even be amended, which means that the earlier order can also be totally modified after giving a notice to the assessee. However, by reason of section 154(1A) of the Act, if any matter determined by the income-tax authorities was considered and decided in an appeal or revision relating to such an order, the income-tax authority again cannot pass an order under section 154 of the Act. 8. In Asst. CIT v. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227 ; 14 SCC 171, the Supreme Court, while dealing with a case arising under section 254 of the Act, considered the scope of the words and phrase "mistake apparent on the face of the record." The Supreme Court also considered the scope of section 254(2) of the Act. It was held therein that the power conferred under section 254(2) of the Act is not the power of review but is a power conferred, "to rectify any mistake apparent on record." It was also observed that, while doing so, the Tribunal may s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent on the face of the record means an error which strikes on mere looking and does not need, long drawn out process of reasoning on points where there may conceivably be two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no court would permit it to remain on record. If the view accepted by the court in the original judgment is one of the possible views, the case cannot be said to be covered by an error apparent on the face of the record. Though learned counsel for the assessee submitted that the phrase `to rectify any mistake apparent from the record' used in section 254(2) (as also in section 154) is wider in its content than the expression `mistake or error apparent on the face of the record' occurring in rule 1 of Order XLVII of the Code of Civil Procedure, 1908 (vide Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. ITAT [1988] 174 ITR 579 (Ker)), it is not necessary for us to enter into the said question in the present case." 9. It is no doubt true that, in I. T. T. A. No. 149 of 2005, the assessment for the year 1993-94 was completed and the same was rectified vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 32(1)(ii) of the Act cannot be allowed. It was also held that the assessee had not purchased any centering material, but had purchased raw material to convert it into shuttering material. The Tribunal did not advert to the question of exercise of power under section 154(1) of the Act by the Assessing Officer. As rightly pointed out by the senior standing counsel for the Revenue, this is justified because the assessee did not raise any ground, which is now sought to be raised before us. An appeal, under section 260A of the Act, is only on a question of law. A mixed question of fact and law, which has not been raised before the Tribunal, may in certain situations be permitted to be raised. But in this case no such plea was raised and we are afraid we cannot permit the assessee to raise this ground for the first time before us. Further the question stands concluded by the decision of the Supreme Court in Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227. The question is, therefore, answered against the assessee. Higher rate of depreciation on vehicles used in contract works 11. The next question relates to I. T. T. A. No. 124 of 2005 (assessment year 1995-96) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch unit, be it as a single shutter or plurality of shutters, is a "plant" and if the value is less than Rs. 5,000 it would qualify for 100 per cent. depreciation under the proviso to section 32(1)(ii) of the Act. Whether this contention can be countenanced by the court ? We start considering the issue by quoting sections 43(3) and 32(1)(ii) proviso of the Act. "43. Definitions of certain terms relevant to income from profits and gains of business or profession.- In sections 28 to 41 and in this section, unless the context otherwise requires- . . . (3) `plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession." "32. Depreciation.-(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed- . . . (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed : Provided that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any statutory definition or other indication to the contrary." Referring to Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 in the Principles of Statutory Interpretation Justice G. P. Singh elucidates as under. "The principle that in statutes directed to commercial men, words having definite commercial sense must be understood in that sense as that would be `the natural and proper sense' in that context has been applied in the construction of Income-tax Acts. It was, therefore, held that the words `profits and gains', when used in an Income-tax Act should be understood in a sense which no commercial man would misunderstand. Applying the same principle the expression `borrowed money' or `capital borrowed' when used in an Income-tax Act has to be understood in its ordinary commercial usage implying a transaction of loan with relationship of borrower and lender. Similarly the word `investments' in section 23A of the Income-tax Act, 1922 was construed in the ordinary popular sense of the word as used by businessmen and it was held that it is not limited to investments in shares, debentures, stocks etc. but also covers investments in house property or other income yiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Evam Nirbal Varg Avas Nigam Ltd. v. CIT [1998] 229 ITR 776, 781, the Allahabad High Court quoted with approval the observations of the Income-tax Appellate Tribunal with regard to the shuttering material. "Shuttering is normally used to support the roof when concrete is being laid on it. These are not items of consumable stores, for they are retrieved after the roof has been laid and used again elsewhere. It is like any other tool with the help of which construction is done . . . shuttering material is a plant and machinery just as a concrete mixer or any other tool with which masons work". 21. In CIT v. Alagendran Finance Ltd. [2003] 264 ITR 269, 273 (Mad), the purpose of shuttering material was explained thus : "While erecting scaffoldings for a building, centering sheets are usually arranged in different shapes and sizes and a single sheet also is used for a particular work. It is not, as a matter of rule, centering sheets have to be used collectively for all works. Depending upon the nature of work, the number of centering sheets to be used varies. A single individual centering sheet may be sufficient for a particular work in the process of construction of a building and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering component, forming the integrated unit, has to be treated as one plant whereas the Revenue took the contra position contending that the entire shuttering material forming one integrated unit has to be considered while applying the proviso to section 32(1)(ii). The Madras High Court in Alagendran Finance Ltd. [2003] 264 ITR 269 and Express Newspapers Ltd. [2006] 280 ITR 452 and the Rajasthan High Court in Mohta Construction Co. [2005] 273 ITR 276 took the view that each component forms an integrated unit of shuttering material. With respect, we are not persuaded by these opinions. What is the test to be applied to determine whether a single component of a plant is, by itself, a plant or stand alone, cannot be of any assistance in business operations. 25. In CIT v. Taj Mahal Hotel [1971] 82 ITR 44, the Supreme Court held that, sanitary and pipeline fittings installed in a hotel are to be treated as plant for the purpose of development rebate. It was pointed out that the intention of Parliament was to give the expression a very wide meaning and that is why Articles like books and surgical equipment were expressly included in the definition of "plant". Further it was held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever apparatus is used by a businessman for carrying on his business-not his stock-in-trade which he buys or makes for sale ; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business) the Division Bench referred to English and Indian authorities and summed up the following eight applicable principles to determine whether an equipment is "plant" (page 169 of 175 ITR) : "(1) `Plant' in section 43(3) of the Act is to be construed in the popular sense, namely, in the sense in which people conversant with the subject-matter with which the section is dealing, would attribute to it. The word `plant' is to be given a `very wide' meaning. In its ordinary sense, it includes whatever `apparatus' is used by a businessman for carrying on his business but it does not include his stock-in-trade which he buys or makes for sale. It, however, includes all goods and chattels, fixed or movable, live or dead which the tradesman keeps for permanent employment in his business. (2) But the building or the "setting" in which the business is carried on cannot be plant. (3) The thing need not be part of the machine used in the manufacturing pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n really be supposed that Parliament desired to encourage a particular expenditure out of taxpayers' money. The Division Bench further observed as follows (page 678) : "What then is the true test to be applied ? Is it the possibility of the thing or the article in question being capable of use in some other business of a similar or dissimilar kind, which would provide the answer, whether or not to treat the article or thing as a plant ? Or is it the function which the article performs in the trading activity of the assessee which is the key to the solution ? . . . The fact that the cages which the assessee in the case before us has purchased could be used by the same or some other assessee for a similar or some other business is not, in our opinion, a conclusive test. What is important is the function which the cage is utilised to perform, in the trading activity of the assessee. If this function was one of a self-contained unit, it may have been permissible to treat all the 9,000 cages purchased by the assessee to be as many independent units, in which case, each one of those cages may have qualified for a 100 per cent. depreciation, the value of each cage being admittedly less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the trading purpose. So the main test is whether a given item is such without which business cannot be carried on." (emphasis supplied) 31. In First Leasing Co. of India Ltd. v. CIT (No. 2) [2000] 244 ITR 238, a Division Bench of the Madras High Court considered the question whether soft drinks bottles, leased out by the assessee to Spencer were eligible for 100 per cent. depreciation allowance under the first proviso to section 32(1)(ii). Following the decision in Sri Krishna Bottlers P. Ltd. [1989] 175 ITR 154 (AP) and other decisions, it was held that 100 per cent. depreciation can be claimed on the bottles used in soft drinks. The reasoning of the Madras Bench is as follows (page 241) : "Bottles by their very nature are required to be used individually, each bottle is used separately for the purposes of consumption even though the bottling plant may be capable of filling a large number of bottles simultaneously. What is ultimately marketed is the contents of each bottle though the wholesaler may buy a large number of such bottles. Each bottle is an independent unit and is not dependent for its user on the availability of other bottles whether empty or filled. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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